Post-crisis securitized home loans have performed well as risk layering and credit scores have remained constant. But growing cashout share is a concern.
Over the past six years, the extent of risk layering on new loans that are part of residential mortgage-backed securities has remained generally stable.
Also holding steady during the same period has been the share of mortgages to borrowers who have credit scores that are less than 725.
Moody’s Investors Service discussed the details in RMBS – US: Prime deal risk-layering is stable, despite emergence of higher-CLTV cash-out refis.
As a result of the consistency, loans in RMBS issued after 2010 have continue to perform well.
The ratings agency said, however, the widening share of cashouts is a concern.
Cashouts with combined loan-to-value ratios in excess of 75 percent have accounted for an increasing share of securitized loans. This segment of cashout transactions is more vulnerable to a home-price decline.
Cashout share has been expanding as rate-term refinances are less in demand and home prices are significantly rising.
“The performance of US prime RMBS collateral since the recession has been extremely strong,” Moody’s Analyst Matthew Schurin said in the report. “Among the contributing factors, not only have collateral pools included loans to borrowers with relatively high credit scores and substantial home equity, but the share of loans with multiple risk factors has remained steady.”